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The performance of the megabank's two rivals last quarter suggests that the Charlotte, North Carolina-based bank will beat expectations when it reports third-quarter earnings.

The narrative about bank earnings in the third quarter just became much more upbeat, suggesting that Bank of America(NYSE:BAC) could exceed analysts' expectations when it reports results on Monday.

Low expectations going into the quarter

Going into earnings season, there was a belief among analysts and commentators that this would be yet another disappointing quarter for the nation's biggest banks. And there were plenty of reasons to think they were right.

The Federal Reserve released data suggesting that growth in commercial loans, the foundation of commercial banking, had decelerated during the quarter. This seemed to have been confirmed when Bank of America's management said that credit-line utilization fell compared to the second quarter. Both developments were presumably due to concerns among businesses about the United Kingdom's pending exit from the European Union.

There was also reason to believe that banks would make less money from their loans, as the gap between how much they pay to borrow money and how much they earn by lending it out has narrowed over the past 12 months. The federal funds rate, the primary short-term interest rate benchmark in the United States, rose 0.25% last December. Meanwhile, the yield on the 10-year Treasury bonds dropped by 0.25% over the past year.

Investment banking fees were also expected to be broadly lower. Dealogic, a financial analytics company, estimated that global mergers and acquisitions activity dropped 20% last quarter, presumably because of the unfolding banking catastrophe in Europe. This hits universal banks like Bank of America, which operate both investment and commercial banking operations.

To make matters worse, bank stocks had recently surged in anticipation of a rate hike from the Federal Reserve, which many believe to be in the cards for the central bank's upcoming meeting in December. The price surge seemed to leave bank stocks especially vulnerable to a retreat at the first sign of bad news.

A better-than-expected quarter

But we now know that these concerns were much ado about nothing. JPMorgan Chase(NYSE:JPM) and Citigroup(NYSE:C) both reported better-than-expected earnings on Friday, one trading day ahead of Bank of America's scheduled announcement on Monday.

JPMorgan beat estimates by 14%, earning $1.58 per share compared to the consensus estimate of $1.39 per share. And Citigroup outperformed expectations by 7%. The two banks didn't just narrowly top the Street's forecasts; in fact, they comfortably exceeded them.

Notably, loan demand grew faster than expected. JPMorgan Chase's commercial loan portfolio expanded by 10%, with commercial real estate loans surging 19%. By contrast, analysts at Keefe, Bruyette & Woods had predicted an increase in the former by only 6%. Meanwhile, total loans at Citigroup were up 7% year over year.

Even more important were the performances of JPMorgan's and Citigroup's trading units. Trading revenue at Citigroup, excluding accounting adjustments, rose 16%. The figure for the same category at JPMorgan was up 33%.

"We delivered strong results this quarter with each of our businesses performing well," said JPMorgan Chase CEO Jamie Dimon in the bank's third-quarter earnings release (link opens PDF). "It's a testament to the power of our platform and our people."

Citigroup CEO Michael Corbat sounded an equally optimistic tone. "I am very encouraged by the underlying momentum across our franchise, notably in several areas where we have been investing," the executive said in prepared remarks. "The acquisition of the Costco portfolio and the recently announced sales of our retail operations in Argentina and Brazil are the latest examples of how we are shifting resources to the areas we believe will generate the best returns for our shareholders."

It probably goes without saying, but this is good news for Bank of America, which operates many of the same business lines as JPMorgan Chase and Citigroup do. This optimistic outlook explains why Bank of America's shares are up 1.4% halfway through today's trading day. It also suggests that the nation's second-biggest bank by assets will top expectations as well.

John Maxfield owns shares of Bank of America. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.